Government's Proposed Changes to Inheritance Tax: What You Need to Know

*Photo, Hankook daily

Overview of the Proposed Inheritance Tax Revisions

After 24 years, the government is poised to revise the inheritance tax, proposing significant changes aimed at alleviating the tax burden on heirs. These changes include a reduction of the top tax rate by 10%, an increase in the basic deduction, and a substantial rise in the child deduction from 50 million won per child to 500 million won. This revision is expected to decrease the annual inheritance tax revenue by 4 trillion won.

Current Inheritance Tax Concerns

Inheritance taxes have long been a source of concern for many households. A typical example is a family with an apartment in Gangnam valued at 2.5 billion won. With a spouse and two children, this family would currently face an inheritance tax bill of approximately 440 million won. Without significant liquid assets, they might be compelled to sell their home to cover the tax liability.

Impact of the Proposed Revisions

Under the revised law, the combined deductions for a spouse, basic, and child deductions would amount to 1.7 billion won. Consequently, the tax owed would be reduced to 170 million won. While this is still a substantial amount, it is a significant improvement over the current situation.

Policy Recommendations for Housing Stability

To further ensure housing stability for heirs, it would be wise to implement policies that allow for lower inheritance taxes on homes or apartments where the deceased resided. Additionally, actively permitting installment payments over time would provide more flexibility and financial relief to heirs.

Justifying the Current Inheritance Tax Structure

Maintaining the current inheritance tax structure could be justified if the top rate of 50% is retained for estates over 5 billion won, considering the potential shortfall in tax revenue. However, lowering the tax rate for estates under 3 billion won from 40% (as per the amendment) to 20% would be a more realistic and reasonable approach, given the current apartment prices.

Legislative Challenges and Political Landscape

Despite the proposed benefits, it is highly doubtful that this amendment will gain the cooperation of the opposition and be approved by the National Assembly. There are also challenges in dispelling suspicions of tax cuts favoring the wealthy and obtaining the agreement of rational moderates.

Conclusion

The proposed changes to the inheritance tax aim to provide relief to families facing substantial tax burdens. While the revisions are a step in the right direction, further policy adjustments and legislative cooperation are necessary to ensure equitable and effective implementation. By balancing the need for revenue with the financial realities of modern families, the government can create a fairer inheritance tax system that supports housing stability and economic well-being for all citizens.